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Thanksgiving is tomorrow, offering millions a day off from work. But Wall Street is still vigorously debating whether Tesla Motors (TSLA) is a bargain or a bad buy.

At $125.91, the shares have dropped 36% off its recent high of $194.50.

Still, Bank of America Merrill Lynch analyst John Lovallo told investors today that shares remain overvalued even after the sell-off. He argues that the company would need to produce 348,000 vehicles a year by 2020 to justify the current valuation.

Deutsche Bank analyst Dan Galves, however, says the sell-off has created a favorable entry point. He writes:

We are reiterating our Buy recommendation on Tesla as we see a series of positive catalysts over the next several months that could lead to renewed confidence in the company’s earnings trajectory. These include: 1) A favorable resolution of the NHTSA investigation; 2) Initial news on (what we believe will be very strong) China order flows; 3) Increased visibility on an accelerating order/production ramp, and; 4) Further gross margin improvement and operating expense leverage (which may be significantly better than consensus).

Galves maintained his Buy rating and a $200 price target.

Today, the bulls seem to have won out as Tesla’s share price rose almost 4.5% in afternoon market action.

During a CNBC appearance this morning, Tesla founder and CEO Elon Musk said Tesla could partner with Google on self-driving car technology.

Tesla Motors (TSLA) shares are down $1.50, or 1.5%, at $103.36. Shares of Google (GOOG) are up less than a point to $875.31 in morning trading.

But before you get too excited about the prospect of 22nd-Century cruise control — a coffee in one hand and smartphone in the other — the government saw fit to issue a new policy yesterday on vehicle automation – see this U.S. Department of Transportation press release.

Today, in a series of CNBC questions from Carl Quintanilla, Jim Cramer, and David Faber, Musk said there is a “good chance” Tesla would partner with Google to develop self-driving cars. But he said there is nothing planned at the moment, and that Tesla is interested, itself, in developing a self-driving car technology.

Musk said Tesla may be able to produce a model costing $35,000 or so in about three to four years. When Cramer asked whether cheaper models would hurt the resale value of the current “Model S,” Musk said he thinks the current car will maintain its value because demand will be higher than the company’s own manufacturing ability for some time to come.

Cramer gushed about the Tesla car following a recent test drive in New Jersey. You can’t hear the engine, he mused, comparing it to a BMW. But Cramer is a little more cautious on shares. Jumping into a cult stock because you like the car is “not the right thing to do,” said Cramer.

Tesla said this week it plans to dramatically expand its electric-car charging network. Bulls think the stock could trade to $300, as we explained here, as it becomes clear that Tesla can stuff its assembly lines with more cars and produce double-digit earnings. The question is, when can it produce 200,000, let alone 500,000 cars, and at what price? Colleague Steve Sears suggests playing the stock with options. (See “Tesla: How To Ride It,” subscription required.)

If you believe electric car maker Tesla Motors can build hundreds of thousands of cars in a few years, the stock could triple.

Today, shares of Tesla Motors (TSLA) are down 6%, or $7.11, to $103.23. The stock crossed the important $100 threshhold this week, on the heels of its first profitable quarter, and repayment of its government loan following a 2.7-million-shares stock offering.

In addition, Tesla CEO Elon Musk is expected to announce news this week about an expanded network of fast-charging stations. He said recently that Tesla could create a compelling, affordable car with a battery that could last for 200 miles, and do so in the next three or four years.

Bull Andrea James, an analyst at Dougherty & Co., said on Bloomberg today that Tesla shares could head to $300 over the next few years if it can increase its production to something meaningful, meaning at least 200,000 vehicles. At that point, the company could earn $15 per share in earnings, and would deserve a multiple of 20 times those profits, meaning a $300 stock price, according to James.

Tesla CEO and Co-founder Elon Musk.

As this YouTube video indicates, James thought the stock wouldn’t get past $40 two years ago. Her current target price is $90. But as the company moves ahead, and projects more about its growth model, she thinks that even with blips, Tesla can achieve scale.

But bears counter that Tesla is burning cash and may not be able to achieve sales expectations. Can Tesla move from production of a small number of expensive vehicles to, at some point, 500,000 autos or more with a presumably more-affordable price point? And what do you pay for that potential growth, as an investor?

Tesla is not expected to turn a profit in 2013, based on analyst estimates, but the consensus calls for 98 cents per share in 2014, with 33% long-term earnings growth, according to Thomson Reuters. Valuation: 105 times 2014 per-share earnings estimates.

March vehicle sales are expected to reach their highest level since 2007, according to new projections from TrueCar.com released today. The site projects seasonally adjusted annual sales of 14.5 million, up from 13.1 million in March of 2011. In addition, companies decreased their customer incentives on a year-over-year and month-over-month basis in March, meaning automakers sold more cars closer to full-price, according to TrueCar.com.

“We are looking at a record breaking month for many manufacturers in March with Hyundai, Nissan (NSANY) and Volkswagen expected to have their highest unit sales ever in the U.S.,” said Jesse Toprak, Vice President of Market Intelligence for TrueCar.com. “We also forecast that Chrysler, Ford (F), General Motors (GM), Honda (HMC) and Toyota (TM) will have an extremely strong month, with some of the highest unit sales in years. Due to stronger than expected recovery, we’ve increased our sales forecast another 3.6%, from 14.0 million unit sales to 14.5 million unit sales in 2012.”

While consumer discretionary stocks’ multi-year run may be played out, market strategist Rick Bensignor favors stocks tied to the automotive industry.

Shares of Ford (F), whose yield is now 1.6%, were off 2.3% Monday, or 29 cents, to $12.42. General Motors (GM) was off 2.2%, or 57 cents, to $25.88.

GM and Chrysler Group are on the verge of selling full-sized pickup trucks that can switch between compressed natural gas and gasoline. Reality is, there are only about 500 fueling stations nationwide with natural gas pumps available to the general public, according to this CNNMoney story. The story overshadowed last week’s news that GM will idle production of its battery-powered Chevrolet Volt for five weeks because of slow sales.

Still, Bensignor, chief market strategist at Merlin, says,

“We can make an argument to rotate out of the consumer services area and into the more beaten down automobiles and components names.”

The chart on the consumer discretionary sector shows a steep upward line from mid-2008. Bensignor sees an “exhaustion reading will likely come in at the end of the second quarter” and that the consumer discretionary group will tread water at best over the next year compared to the Standard & Poor’s 500 index overall.

He thinks hotels, restaurants, leisure businesses and companies in consumer services are candidates for trimming, while automobile stocks and firms that make automotive components are hovering near a long-term secular bottom.

Ford Motor (F) posted quarterly sales and earnings before the bell Tuesday, and the automaker’s total cash position rose by $700 million to $22 billion. Second quarter net income was $2.4 billion, or 59 cents per share, a $201 million decrease from second quarter 2010. Pre-tax operating profit was $2.9 billion, or 65 cents per share, a decrease of $64 million from second quarter 2010.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.